Persimmon plc (LON:PSN) announced the following trading update ahead of its Half Year Results to 30 June 2019, which will be released on Tuesday, 20 August 2019. This statement covers the period from 1 January 2019 to 30 June 2019.
Highlights
- Good early progress on improving customer satisfaction
– Decision to delay sales release to later stage of construction in higher demand locations beginning to deliver anticipated benefits
– Build rate remains robust with new home inventories increased by 19% year on year at period end
– Customer satisfaction rating improved in the first seven months of the new HBF Survey period
– New customer retention scheme being introduced in July, with cover extended to include any faults identified during the first week of occupation
- Strong financial performance maintained
– Total revenues1 of £1.754 billion (2018: £1.836 billion)
– Legal completions of 7,584 (2018: 8,072), reflecting the outcome of our customer service initiatives and later sales releases which reduced average active sites by 8% in H1
– Average selling price of c. £216,950 (2018: £215,813)
– Anticipate underlying housing operating margin2 of 30.8% for full year 2018 to be a reasonable guide for H1 2019
- More first-time buyers helped on to the housing ladder than any other UK housebuilder
– 3,082 new home sales in H1 were to first time buyers – 52% of all private sales (full year 2018 – over 6,850 new home sales, 51% of all private sales)
Dave Jenkinson, Group Chief Executive, said: “I am pleased that there are some clear early signs that our focus on increasing the quality and service delivered to our customers is beginning to bear fruit, with some encouraging improvements being made right across the business. Although we are still in the early days of our improvement plans our customer satisfaction rating, as measured by the HBF, has increased during the period.
“Our progress on customer service shows that Persimmon is listening carefully to all stakeholders and making the changes needed to position the business for the future, while maintaining a robust trading performance. We enter the second half with our build programme well progressed, healthy rates of sale on site and an encouraging forward sales position. I look forward to giving further details of our progress at the interim results in August.”
First half trading
Persimmon’s total revenues1 for the first six months of 2019 were £1.754bn (2018: £1.836bn). Housing revenues for the first six months of £1.645bn were 5.6% lower than the prior year (2018: £1.742bn), with new housing legal completion volumes of 7,584 new homes (2018: 8,072) at an average selling price of c. £216,950 (2018: £215,813).
The value of the Group’s total forward sales of new homes at 30 June 2019 remains healthy at £1.622bn (2018: £1.680bn). The average selling price of the c.4,400 new homes sold forward into the private sales market was c. £238,350, slightly ahead of the prior year (2018: £236,700). The Group’s new homes sold forward to its housing association partners at 30 June 2019 had an average selling price of c. £120,900.
As previously stated, we expect that the Group’s underlying housing operating margin2 for the 2018 full year of 30.8% will be a reasonable guide for the first half of 2019.
The Group’s top priority is to deliver continued improvement in its service to customers. Persimmon is investing in a number of initiatives to deliver these improvements including giving customers greater accuracy of anticipated moving-in dates. To help achieve this we are adopting a more targeted approach to the timing of new home sales releases on certain sites and plots where demand is particularly strong. As a result, the average number of active sales outlets through the first half was c. 345 sites, which was c. 8% lower than last year. As expected, these measures reduced the number of sales reservations that earlier sales release would attract. However, despite this, our weekly private sales rate per active site for the first half continued to be strong at c. 0.74 (2018: c. 0.78).
We anticipate that the Group’s full-year volumes will reflect the continued focus on progressing our customer service initiatives which are important in positioning the business for the future. These initiatives have included a greater focus on the handover of properties to customers which has impacted the volume of new homes completed in the period. A key part of this approach is advancing our build programmes to ensure we have greater availability of homes for sale which are at a more advanced stage of construction. At 30 June we had the equivalent of c. 6,150 new homes of construction inventory, c. 19% more than at the same time last year. As we have seen in the first half, whilst our decision to hold back sites and plots in certain locations for later sales release may lead to a reduction in the volume of new homes handed over to customers in the period, the Group is in a stronger build position moving into the second half of the year. The impact of these actions in this financial year will ultimately depend on the strength of market conditions in these locations during the second half as sites and plots are released for sale at the appropriate stage of construction. As these customer service initiatives are being introduced there are some encouraging early signs of our customer service initiatives supporting improvement in the Group’s customer satisfaction rating as measured by the Home Builders Federation (HBF).
As a national home builder Persimmon delivers good-quality, newly built homes at affordable prices in locations across the UK where people want to live and work. Reflecting local communities’ housing needs, we provide a wide range and choice of new homes on all our developments, with a particular emphasis on first-time buyers. With 51% of Persimmon’s sales into the owner occupier market in 2018 being made to first time buyers, Persimmon is pleased to help more people onto the housing ladder than any other UK housebuilder. Indeed, we have sold 52% of our new homes to first time buyers in the first half of the current year. Our support for the Government’s aim of increasing the supply of good quality homes for everyone is further demonstrated by the Group’s average selling price which is c. 17% lower than the national average for new-build homes sold to owner occupiers3. Consumer confidence remains resilient in our markets and the Group’s developments have continued to attract good customer interest with total visitor levels running in line with the prior year.
We are pleased to confirm that we will be the first major UK housebuilder to offer a retention to customers in July. Since the initial announcement in March 2019 we have continued to listen to feedback from our stakeholders and, as a result, have further improved its design. The retention has been extended to cover faults identified in the first week after moving in, not just by the moving in day itself. At present the availability of this added customer service benefit may be determined by which mortgage lender the customer chooses. We remain hopeful that in due course all lenders will support this important initiative. We will provide a further update at our half-year results in August.
The Group currently has a strong sales network of c. 345 outlets. Working in collaboration with local planning authorities and communities we plan to commence construction of a further c. 85 new developments during the second half of the year. This reflects the Group’s long-term commitment to meeting local community housing needs and investment in the wider benefits and infrastructure that help local communities thrive. Since 2012, the Group has opened c. 1,450 new developments and invested c. £2.5bn in local communities including the delivery of over 17,900 new homes for lower income families to our housing association partners.
During the first half of the year, the Group has continued to pursue selective investment in new land opportunities to maintain its high-quality land bank whilst being mindful of the increased uncertainties regarding the future performance of the UK economy and the cyclicality of the markets that we operate in. We have brought 22 new land parcels for the delivery of c. 3,600 new homes into the business. Our total land spend in the period was c. £239m (2018: £343m). We have successfully converted c. 1,950 plots from the Group’s strategic land portfolio, which represents c. 54% of the total plots brought into the business.
The Group’s strategy includes the return of surplus capital to its shareholders. For 2019, a payment of 125p per share or £398m was paid to shareholders on 29 March with a further 110p per share, or £350m, paid on 2 July in line with our current plan.
The Group entered the current year with strong cash reserves of £1,048m (2018: £1,303m). The Group’s free cash generation through the first half of the year before paying down land creditors and making the capital return remained healthy at c. £244m (2018: £196m). Land creditors at 30 June are anticipated to be c. £490m (2018: £611m). At 30 June the Group held c. £833m of cash (2018: £1,155m) prior to payment of the scheduled capital return of £350m on 2 July 2019.
The Independent Review of our quality and customer care operations has commenced and we look forward to its recommendations on the Group’s approach and processes in the final quarter of this year.
Persimmon has a great platform to continue to build the new homes needed by local people in communities across the UK with its healthy forward sales, strong financial position and high-quality land holdings, which place the business in a robust position for the future.
There will be a call for analysts at 0900 BST today. Please use the dial-in details below:
Telephone number: +44 (0)333 300 0804
PIN: 76521190#
Password: Persimmon
An audiocast of the call will be available on www.persimmonhomes.com/corporate from this afternoon.
Footnote 1 – Total Revenues – IFRS 15 Revenue from Contracts with Customers became effective from 1 January 2018. In line with the explanation provided at Note 1 to the 2018 Financial Statements, the Group’s total revenues include the fair value of consideration received or receivable on the sale of part exchange properties (H1 2019: £108.5m: H1 2018: £93.8m). Housing revenues are the revenues generated on the sale of newly built residential properties and exclude the fair value of this part exchange property consideration.
Footnote 2 – Underlying housing operating margin – presented before goodwill impairment (FY 2018: £9.2m)
Footnote 3 – National average selling price for new build homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land Registry.
